Fifteen Air France workers remained among a number of guests and workers trapped inside a luxury hotel in Mumbai last night after commandos freed hostages elsewhere in the city. An official at the French consulate said a flight crew was in the Oberoi Trident hotel, which was among those targeted by gunmen in attacks that began on Wednesday.

A government official said the siege had ended at the Taj Mahal hotel and the last three gunmen there had been killed.

There were conflicting reports about the fate of hostages held at the Mumbai headquarters of the ultra-orthodox Jewish outreach group Chabad Lubavitch, with diplomats denying a government claim that eight hostages had been freed.

As the attacks began, the authorities had been content to rely on conventional police methods to deal with the threat. However, as flames erupted from the Taj Mahal hotel it became clear that India was confronting an enemy unlike anything it had met in the past.

To begin with, police had battled on the streets with militants wearing backpacks on their shoulders and with guns and grenades in their hands. This was a street war they were losing: in the early hours, a gunfight erupted under the glittering lights of Marine Drive, near the lobby of the Trident hotel. A top Mumbai police chief was killed.

The tide of battle only turned with the arrival of the elite national security guard, who landed in Mumbai six hours after the terrorist attack began. They were joined by heavily armed army para commandos and the navy's marine commando force.

These commandos, who train with US navy and British special forces, retook the lower floors of both the Trident and the Taj in the early hours. Soldiers speaking to the Guardian said their plan was to "secure the lower floors and set up a safe perimeter", and then to make their way up "level by level". "We are interested in getting the job done. We will not do that by sitting downstairs," said one "black cat" commando, wearing the trademark dark fatigues of the elite unit.

However, army officers acknowledged that they faced difficult opponents whose intention was to kill and then be killed. This remorseless battle to the death pockmarked and pitted the luxury hotels.

Three times flames raged over the roof of the 105-year-old Taj Mahal, reducing much of it to ashes and cinder. By 11.20pm yesterday, army sources told Indian television that "all terrorists have been eliminated".

Columns of troops were sent into the Trident complex late yesterday. The upper-floor windows of the hotel were blown out in a shower of flames, glass and bullets just hours after 40 people had been led from the building.

"We came up against highly motivated terrorists," Vice-Admiral JS Bedi told NDTV news channel. He said his commandos had exchanged fire with terrorists on the second floor of the Taj hotel, and showed pictures of recovered hand grenades, tear gas shells, AK47 magazines, knives and credit cards.

The commandos' work was made even more difficult by the fact the hotel guests fearful of being taken hostage were still barricaded in their rooms at both the Taj Mahal and Trident. In the Trident alone it was estimated that 200 people may have locked themselves in.

Like the Taj, the Oberoi Trident is popular with international visitors. Previous guests have included the News Corporation chairman, Rupert Murdoch, and Microsoft's founder, Bill Gates.

As the battle against the terrorists entered its second day, many called for a swifter and harder response from the authorities. "By now we should have learned to put a crisis management infrastructure in place which could snap to attention and cope with such attacks if we don't want lots of innocent people to suffer," Ratan Tata, head of the Tata Group, which owns the Taj, told reporters. "This action [by the authorities] has not come together fast enough."

Indian security officials reply that this new breed of hardened militant is not open to negotiated settlement. "Neither have they tried to talk, nor made any contact with us," RR Patil, the interior minister of Maharashtra state, told journalists. "Unlike earlier terror strikes, they are making no attempt to run either. The terrorists clearly want to stay and fight."

At the heart of the matter lies the question of whether the police can deal with terror on the streets of Indian cities. The police are poorly equipped with primitive body armour and carbines, and are also hamstrung by the absence of a national anti-terror force. As a result, the fightback remains uncoordinated nationally, and fragmented at the provincial level.